Bridgeton Inc enters into a lease of non-specialized equipment with Kenwood Company. The fair value of theequipment at lease commencement is $600,000. Kenwood Company does not provide a residual value guarantee.Bridgeton Inc estimates that the fair value of the construction equipment at the end of the lease will be $200,000.While Bridgeton Inc acknowledges the value of the asset may decline below $200,000 in the future, Bridgeton Incconcludes there is less than a 1% chance of the value falling below $150,000. Therefore, to protect its investment,Bridgeton Inc obtains residual value insurance from a third party covering any loss incurred by Bridgeton Inc if thevalue declines to between $200,000 to $150,000. That is, if the residual value falls below $200,000, Bridgeton Inc iscovered for the first $50,000 of loss. The risk of loss associated with the value of the equipment falling below$150,000 is retained by Bridgeton Inc.Assume Bridgeton Inc has already evaluated the lease classification criteria and concluded the lease is not a sales-typelease.Required:1. How should Bridgeton Inc classify the lease?2. Would your answer differ if Kenwood Company had guaranteed the residual

1. Leases are of two types- a) Financial Lease. b) Operating Lease. According to US GAAP, if any of…

Bridgeton Inc enters into a lease of non-specia equipment at lease commencement is $600,00 Bridgeton Inc estimates that the fair value of t While Bridgeton Inc acknowledges the value o concludes there is less than a 1% chance of th Bridgeton Inc obtains residual value insurance value declines to between $200,000 to $150,0 covered for the first $50,000 of loss. The risk $150,000 is retained by Bridgeton Inc. Assume Bridgeton Inc has already evaluated t

Bridgeton Inc enters into a lease of non-specia equipment at lease commencement is $600,00 Bridgeton Inc estimates that the fair value of t While Bridgeton Inc acknowledges the value o concludes there is less than a 1% chance of th Bridgeton Inc obtains residual value insurance value declines to between $200,000 to $150,0 covered for the first $50,000 of loss. The risk $150,000 is retained by Bridgeton Inc. Assume Bridgeton Inc has already evaluated t

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Grygiel Company leases a nonspecialized machine with a fair value of $50,000 to Baker Company. The lease has a life of 6 years and requires a $10,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Round your answers to the nearest dollar. (Click here to access the PV and FV tables to use with this problem.) Required: 1. If the interest rate implicit in the lease is 10%, compute the machine’s expected residual value.
On January 1, 2022, Yencay, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Thol Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. The fair value of the building on January 1, 2022 is P4,000,000; however, the book value to Holt is P3,300,000. The building has an estimated economic life of 10 years, with no residual value. Yencay depreciates similar buildings on the straight-line method. At the termination of the lease, the title to the building will be transferred to the lessee. Yencay's incremental borrowing rate is 11% per year. Thol Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yencay, Inc. The yearly rental payment includes P10,000 of executory costs related to taxes on the property. The agreement…
Eubank Company, as lessee, enters into a lease agreement on July 1, 2018, for equipment. The following data are relevant to the lease agreement: The term of the noncancelable lease is 4 years, with no renewal option. Payments of $978,446 are due on July 1 of each year. The fair value of the equipment on July 1, 2018 is $3,500,000. The equipment has an economic life of 6 years with no salvage value. Eubank depreciates similar machinery it owns on the double-declining balance basis. The lessee pays all executory costs. Eubank’s incremental borrowing rate is 10% per year. The lessee is aware that the lessor used an implicit rate of 8% in computing the lease payments (present value factor for 4 periods at 8%, 3.57710; at 10%, 3.48685). Instructions (a) Indicate the type of lease Eubank Company has entered into and what accounting treatment is applicable. This is a capital lease; therefore, it should be accounted for by the capital lease method. (b) Prepare the journal…
Grygiel Company leases a nonspecialized machine with a fair value of $40,000 to Baker Company. The lease has a life of 6 years and requires a $6,000 payment at the end of each year. The lease does not include a transfer of ownership nor a bargain purchase option, and the life of the lease is less than a major part of the expected economic life of the machine. It is probable that Grygiel will collect the lease payments plus any amount necessary to satisfy a residual value guarantee. Round intermediate and final answers to the nearest dollar. (Click here to access the PV and FV tables to use with this problem.) Required: 1. If the interest rate implicit in the lease is 10%, compute the machine’s expected residual value.$fill in the blank 1
On January 1, 2022, Yencay, Inc. signs a 10-year noncancelable lease agreement to lease a storage building from Thol Warehouse Company. Collectibility of lease payments is reasonably predictable and no important uncertainties surround the amount of costs yet to be incurred by the lessor. The following information pertains to this lease agreement. The fair value of the building on January 1, 2022 is P4,000,000; however, the book value to Holt is P3,300,000. The building has an estimated economic life of 10 years, with no residual value. Yencay depreciates similar buildings on the straight-line method. At the termination of the lease, the title to the building will be transferred to the lessee. Yencay's incremental borrowing rate is 11% per year. Thol Warehouse Co. set the annual rental to insure a 10% rate of return. The implicit rate of the lessor is known by Yencay, Inc. The yearly rental payment includes P10,000 of executory costs related to taxes on the property. The agreement…
Now suppose that, at the end of the lease term, Kimberly-Clark took good care of the asset and Sheffield agrees that the fair value of the asset is actually $10,500. Record the entry for Kimberly-Clark at the end of the lease to return control of the storage building to Sheffield (assuming the accrual of interest on the lease liability has already been made).
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed? Group of answer choices 27.95% 14.72% 6.85% 12.23%
Plessings Company leased a piece of machinery to Banana, Inc. on January 1, 2023. The lease is correctly classified as a sales-type lease. Plessings will receive three annual lease payments of $20,900, with the first one received on January 1, 2023. There is no guaranteed or unguaranteed residual value. The fair value of the machine is $50,000 and Plessings incurs initial direct costs of $5,000. What is the implicit rate assuming the initial direct costs are expensed?
Burns, Inc. (lessor) agreed to lease a delivery van to Wilmore Corp. (lessee). The lease was classified as a finance/sales-type lease, but the van will be turned back over to Burns at the end of six years. Which of the following is true regarding the proper treatment of the delivery van's estimated residual value? Multiple Choice In a lease that includes selling profit, the lessor will add the present value of the estimated residual value to sales revenue in the initial entry. U In establishing the initial lease payable, Wilmore will include the present value of the full estimated residual value, but only if it is guaranteed. Estimated residual values are ignored by both parties when initially recording a lease. In calculating the required lease payments, Burns will consider the estimated residual value regardless of whether it is guaranteed or unguaranteed by Wilmore.
Oriole Ltd., a public company following IFRS, recently signed a lease for equipment from Costner Ltd. The lease term is 7 years and requires equal rental payments of $19,049 at the beginning of each year. The equipment has a fair value at the lease's inception of $104,500, an estimated useful life of 7 years, and no residual value. Oriole pays all executory costs directly to third parties. The appropriate interest rate is 9%. Click here to view the factor table PRESENT VALUE OF 1. Click here to view the factor table PRESENT VALUE OF AN ANNUITY DUE. Using tables, a financial calculator, or Excel functions, calculate the amount of the right-of-use asset and lease liability. Prepare the initial entry to reflect the signing of the lease agreement and the first payment under the lease. (List all debit entries before credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account…
Sheffield Inc. entered into a five-year lease of equipment from matusek Limited on July 1, 2024. The equipment has an estimated economic life of eight years and fair value of $235,000. The present value of the lease payments amounts to $202,670. The lease does not have a bargain purchase option and ownership does not transfer to Sheffield at the end of the lease. (a) Your answer is correct. Record the transaction assuming Sheffield follows IFRS. (List debit entry before credit entry. Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles IFRS Right-of-Use Asset Lease Liability Debit 202670 Credit 202670
Sassy Company enters into a five-year lease agreement with Corral Company (lessor) over equipment on December 31, 2014. The provisions in the lease are as follows: Island Company will pay P250,000 per year; has the option to purchase the equipment at the end of the five-year period for P100,000 and if the company does not purchase the equipment, it must return to the lessor. Base on the fair value of the asset of P800,000, the periodic rentals of P250,000, and the unguaranteed residual value of P100,000 and based on these variables, the implicit rate of the lease is 19.34%. What should be the carrying value of the lease liability on December 31, 2017?385 022532 122655 364758 643